At the end of the finale of Psych season 6, called "Santabarbaratown", Gus and Shawn have an exchange wherein Shawn says, referring to Dahlia Twon, "his sister, his girlfriend, his girlfriend, his sister", to which Gus responds, "...It's just Santa Barbara". I know that many Psych episodes (especially those of season 6) often parody or reference other works. It seams like this is what they were doing here.

In addition to "Forget it, Jake, it's Chinatown," another line of the film's dialogue that has become famous is "She's my daughter. She's my sister...She's my sister and my daughter," spoken by Dunaway ... [Source]

There a couple of Chinatown references, including the episode's title.
– Oliver_CFeb 28 '13 at 10:37

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Yeah, I immediately thought about Chinatown when reading Gus's quote, but then thought that the original "Forget it, Jake. It's Chinatown" doesn't match that well. But together with Shawn's quote (whose Chinatown original I didn't immediately remember) and the episode title, this seems a perfect fit. Maybe you might want to include the characteristic Chinatown quote (the one matching Gus) as an additional argument and move the mentioning of the title from the comments into the answer. As they all together give a pretty good proof of the Chinatown reference.
– Napoleon Wilson♦Feb 28 '13 at 12:43

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@ChristianRau - There are a few more references, e.g the victim's name is Veronica Towne, wich alludes to Chinatown's writer Robert Towne. And there is a waitress named Ida, which is a reference to the character Ida Sessions in Chinatown.
– Oliver_CFeb 28 '13 at 14:34

Ah, I also thought immediately about Chinatown, but Gus's quote didn't match that well, but together with the previous sentence (that the OP left out, didn't see this season myself, yet) it is pretty obvious. Also take a look at Oliver's answer for even more Chinatown references.
– Napoleon Wilson♦Feb 28 '13 at 12:50